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BRSA: 11-month total profit of banks increases by 31% compared to a year ago

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According to the monthly data of the BRSA; The total profit of Turkish banks in the January-November period rose to 75.3 billion liras ($6.08 billion), from 57.3 billion liras in the same period of the previous year.

 

·        The NPL ratio decreased from 3.97% to 3.22% as of November.

·        Average standard capital adequacy ratio decreased from 19% to approximately 18% annually.

·        Average core capital adequacy ratio decreased from 15% to approximately 13% annually.

 

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The net profit figure of the Turkish banking sector in November was 9.2 billion TRY. While private deposit banks showed a stronger performance with a 78% quarter-on-quarter profit increase in the related period; Profitability in public deposit banks increased by 18% compared to the previous quarter. Among the factors affecting profitability, especially the increase in loan provisions seems to be important. While loan growth continues, the activity in consumer loans continues as a driver. The expansion in banking revenues and loan deposit spread is positive for the sector. In November, there was a high increase of 215% in provisions. Along with the increase in the total cost of credit risk, banks can be expected to increase their provisions in an environment where commercial loans are aimed to be increased with the main policy financial instruments and precautionary measures. We think that the current situation may have a limiting effect on banking profits. As of November, the profits of public deposit banks decreased by 51% on an annual basis compared to the same period of the previous year.

 

The gap between loan and deposit rates seems to have widened considerably. In other words, it is seen that current policies have a very positive effect on bank balance sheets. Banks’ foreign currency positions and liquidity coverage ratios are also important here. Market-based borrowing costs are the main factor in keeping loan rates down despite the policy rate cuts. As a result, we follow a benchmark interest rate of 23%, against an average funding rate of 14%. High realizations in the following months in inflation expectations may increase market-based interest rates. This shows that the easing in loan rates may be limited. On the other hand, the fact that banks have increased their current interest rates after the introduction of the new currency protected deposit product has basically caused interbank rates to remain high in the current period. The declining risk appetite and the high course of loan rates can be expected to limit loan outflows in the sector. It will be necessary to look at the profit potential of core banking activity and the trend in interest margins in the future.

 

With 2020 being a bad base year, it seems that the sector’s profitability will show a double-digit recovery throughout 2021. In this context, we estimate that the profitability of the banking sector, which increased by 31% in the January-November 11-month period, will end the year with more or less the same profit growth. The uncertainty of the course of exchange rates may affect the trend and NPL ratios in FX loans. Therefore, we estimate that the loan appetite of the sector will be limited by private deposit banks. At the same time, the end of the BRSA’s practice that increased the follow-up period of loans from 90 days to 180 days during the pandemic period may also lead to an increase in the NPL ratios of the sector.

 

While calculating the capital adequacy ratios of banks, the arithmetic average of the exchange rate of the last 252 working days will continue to be taken as basis. Capital adequacy remains at standard levels. CAR is 18% across the sector, core CAR is 13%. 15% for public banks, 11% core CAR (which will likely be supported by capitalization). While the core ratios were around 15% last year, there is a regression to 13%.

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